TaxTMI 
TaxTMI 
2020 (11) TMI 150
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....ief are that the Petitioner is a company engaged in the business of construction of residential complexes since its incorporation on 25.05.2013. The Petitioner claims to be a regular and timely taxpayer under both the Service Tax and GST regime. It has never been subjected to any general or special audit by either the Service Tax or the GST authorities. Petitioner's books of accounts and business are subjected to, among other things, statutory audit in terms of the Companies Act, 2013 and the Income Tax Act, 1961. On 21.01.2020, officers of Central Goods and Service Tax, Audit-II visited the business premises of the Petitioner, directed the production of certain documents and sought information in relation to the disputed period. In addition thereto, the officers also demanded information pertaining to several group companies of the Petitioner. Despite Petitioner's compliance with the above and submission of the requisite information, the officers visited the business premises again on 17.02.2020 as well as 24.02.2020. Their conduct exhibits the intention to continue with the visits, conduct audit/verification proceedings, and give further directions for production of documents and....
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....n Aargus Global (supra). He insisted that although the court has rejected the contention that Rule 5A of the Service Tax Rules, 1994 does not survive the enactment of the CGST Act, yet the stances urged in the present petition call for a fresh and independent consideration. The contentions urged by Mr. Raghvendra Singh, learned counsel for the Petitioner can be summarised as follows: (i) That the respondents exercising powers under Rule 5A of the Service Tax Rules, 1994 are not the proper officers. The Commissioner Central Tax Audit-II has been appointed in terms of notification No. 2/2017-Central Tax (N.T.), dated 29.07.2017 for audit/verification under Sections 65 and 71 of the CGST and IGST Acts and is not a Central Excise Officer as required under Rule 3 of Service Tax Rules, 1994. Even though the proviso to Section 3 of CGST Act stipulates that the officers appointed under the Central Excise Act, 1944 are deemed to be the officers under the CGST Act, the converse of this provision cannot be assumed to be true. Therefore, the respondents are exercising powers beyond the purview of Rule 5A of the Service Tax Rules. (ii) That the judgment rendered in Aargus Global (supra) doe....
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....ave been initiated only in terms of the provisions of Finance Act, 1994. However, an audit under Rule 5A of the Service Tax Rules cannot be conducted, as subordinate legislation is not saved. The expression 'duty, tax, surcharge, fine, penalty, interest as are due or may become due' controls the exercise of power under Section 174 of the CGST Act. In this context, undisputedly, no service tax was due from the Petitioner. Service tax returns have been filed regularly and service tax has been paid and accepted by the Department. The accounts are audited under the Companies Act, 2013 and also under the Income Tax Act, 1961. (vii) That the exercise of power under Rule 5A cannot result into any tax becoming due. Audit under Rule 5A is qualitatively and materially different from audit under Section 72A of the Finance Act, 1994. Thus, even if, it is assumed that Rule 5A survives the enactment of CGST Act, the exercise of the power by the respondents is beyond the ambit of Section 174 of the CGST Act. 5. Mr. Harpreet Singh, learned senior standing counsel for the respondents on the other hand argued that the precise contentions urged by the Petitioner have been considered and rejected b....
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....4 do not survive the enactment of the CGST Act. He further submits that Clauses (d) and (e) of Sub Section (2) of Section 174 have to be read in conjunction. Therefore, what is not affected by the omission of Chapter V of the Finance Act, 1994, is the "duty, tax, surcharge, fine, penalty, interest" which were due, or may become due even after the enactment of the CGST Act and the omission of Chapter V of the Finance Act, 1994. He submits that such "duty, tax, surcharge, fine, penalty, interest" could be only in respect of, and arising out of proceedings already initiated, and ongoing proceedings on the date of enactment of the CGST Act. In this regard, learned Senior Counsel for the Petitioner has laid special emphasis on the use of the words "in respect of the any such duty, tax, surcharge, penalty, fine, interest, right, privilege, obligation, liability, forfeiture or punishment, as aforesaid" contained in Clause (e), as also the words "and any such investigation, inquiry, verification......"used in the same clause. We cannot agree with this submission of learned Senior Counsel for the Petitioner. Clause (e) expressly empowers the Competent Authorities to initiate and institute e....
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....e Act, 1994 by amending the same. No part of the Finance Act, 1994 was repealed by the provision of the CGST Act. This omission came into effect only from the date of enforcement of the CGST Act and not earlier. Therefore, Chapter V of the Finance Act, 1994 remained on the statute book till the enforcement of the CGST Act. Secondly, even this Amendment of the Finance Act, 1994 (by Section 173 of the CGST Act) saves what was otherwise provided in the Act, which included what is provided in Section 174. Therefore, to the extent the provisions of Chapter V of the Finance Act, 1994 are saved, they do not stand omitted by amendment of the Finance Act, 1994. Thirdly, the Rules under Chapter V of the Finance Act, 1994, were framed, as noticed hereinabove, to carry out the provisions of Chapter V of the Finance Act, 1994. The rules are subordinate legislation and without the said Rules, the provisions of Chapter V of that Act itself could not be worked. The Service Tax Rules were framed under Chapter V of the Finance Act, 1994. Those rules are, therefore, saved by Clause (b) of Section 174 (2) which states that, inter alia, anything duly done under the Chapter V of the Finance Act, 1994 sh....
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....es does not survive the enactment of CGST Act, 2017. The Court has extensively examined Section 173 and Section 174 of the CGST Act and come to the conclusion that the intention of the Parliament was clearly to save not only the ongoing but also the initiation of fresh investigation, enquiry, verification etc. in respect of the acts and omission relating to inter alia the erstwhile service tax regime. This Court has also held that Service Tax Rules, 1994, being subordinate legislation would fall within the range of the parent Act that has been specifically saved, and, it's non-inclusion by title, in the saving clause, would not have a bearing on the applicability of the saving statute. The Court has come to the conclusion that Section 174 of the CGST Act, 2017 expressly seeks to preserve the powers of the central authority to, inter alia, institute or continue an investigation, inquiry etc. and no contrary intention is exhibited from the said provision. The Court purposely delved into the effect of Section 6 of the General Clauses Act and held that the power of the competent authority stood preserved also by virtue of the said provision. 8. In view of the aforesaid, we tend to agr....
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....estions under consideration by this Court, to support their reasonings." 10. The above noted principles should be recognized and borne in mind for appreciating any observations made in the judgments. That said, Kolhapur Canesugar (supra) was a case dealing with a rebate of central excise duty on sugar produced in excess during the season 1973-74. The rebate was sanctioned and credited to the appellant in their personal ledger account. On re-examination of facts and circumstances connected with the said rebate claim, the Revenue had contended that the Appellant was not eligible and rebate was erroneously sanctioned and credited. A show-cause notice was issued under the then existing Rule 10A of the Central Excise Rules for recovery of the rebate amount. Before the order could be passed by the Assistant Collector, Central Excise, with effect from 06.08.1997, Rule 10 and 10A were deleted/omitted and a new provision was introduced as Rule 10. Being unsuccessful before the statutory authorities, the Appellant approached the High Court and raised the contention that since Rule 10 and 10A stood deleted, the effect thereof was that the Rules under which the show-cause notice was issued, c....
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....tion bench judgment of Rayala Corporation v. Director of Enforcement, New Delhi, AIR (1970) SC 494:1970 Cri LJ 588, wherein it was said that "Section 6 only applies to repeals and not to omissions, and applies when the repeal is of a Central Act or Regulation and not of a Rule". (Para 15, page 656 of the Supreme Court Report). (c.) There was no saving provision in favour of pending proceedings and therefore court held that the realization of refund can be taken under the new provision in accordance with the terms thereof. (d.) Section 6 of General Clauses Act was held to be inapplicable as it was held to be a case of omission and not repeal. 12. The absence of a saving clause, in our opinion, was extremely telling of the legislature's intention of not protecting pending proceedings. The legislative intent is in fact the bedrock of the saving provision, as also noted in Kolhapur Canesugar (supra) in the following words: "The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute book as completely as if it had never been passed, and the statute must be considered as a law that never exi....
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....rovision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will continue. If the case is covered by Section 6 of the General Clauses Act or there is a pari materia provision in the statute under which the rule has been framed, in that case also the pending proceeding will not be affected by omission of the rule. In the absence of any such provision in the statute or in the rule the pending proceedings would lapse on the rule under which the notice was issued or proceeding was initiated being deleted/omitted." 15. Thus, for the reasons discussed above, and given that sub-section 2 of Section 174 of the CGST Act expressly saves all pending and new proceedings to be initiated under the old regime, and sub-section 3 of Section 174 allows the operation of Section 6 of the General Clauses Act. In our view, the judgment of Kolhapur Canesugar (supra) is inapplicable. Pertinently, as observed in the preceding paragraphs, we are of the opinion that the observations of the Court reproduced above go against the Petitioner. 16. Likewise, the Judgment in Air India (supra), also does not su....
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....y, because the usual practice is to insert in the later statute a section expressly preserving previously made by-law if it is intended that they shall remain in force." 8. Bennion on Statutory Interpretation, 2nd edition, at pages 494 and 495 states that a "saving is a provision the intention of which is to narrow the effect of the enactment to which it refers so as to preserve some existing legal rule or right from its operation". Its adds, "Very often a saving is unnecessary, but is put in ex abundanti cautela to quieten doubts". The updated text of the Interpretation Act, 1978, (set out in Bennion's book at page 897) puts into statutory form in Section 15 what is otherwise recognised in law, namely, that the repeal of an enactment does not, unless the contrary intention appears, affects any right or privilege accrued under that enactment. 9. In our view, if subordinate legislation is to survive the repeal of its parent statute, the repealing statute must say so in so many words and by mentioning the title of the subordinate legislation. We do not think that there is room for implying anything in this behalf." 17. It can be seen that the case is entirely distinguishable on ....
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....uled Districts Act, 1874, (14 of 1874) or any like law, has been extended to any local area, has, by a subsequent notification, been withdrawn from the re-extended to such area or any part thereof, the provisions of such Act or Regulation shall be deemed to have been repealed and re-enacted in such area or part within the meaning of this section]." (Emphasis supplied) 20. Revenue has strongly relied upon Section 24 to contend that in addition to the reasoning of the court in Aargus Global (supra), Rule 5A is saved because of the afore-noted provision also. The Petitioner however controverts the contention by arguing that Section 24 is inapplicable since the Service Tax Rules, 1994 stand superseded by the CGST Rules, 2017. We find no merit in Petitioner's contention for the reasons stated hereinafter. 21. We shall first briefly note the legal provisions concerning the controversy in the present case. Service tax was part of indirect tax structure of our country which was levied and collected by the service provider, but borne by the service recipient. The legal provisions for the levy and collection of Service Tax were introduced under Chapter V of the Finance Act, 1994 (Act 32 o....
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....repeal of the erstwhile legislations, with effect from the date of commencement of GST laws, most of the indirect taxes (including service tax), have ceased to exist and have resurrected in the unique form of GST. As we moved into a new system, the legislature ensured that the repealed laws are saved for a smooth transition. It provided an extensive saving clause under the CGST Act. Despite the elaborate saving clause, the Parliament in its wisdom also added a subsection (3) to section 174 in following words: "The mention of the particular matters referred to in sub-sections (1) and (2) shall not be held to prejudice or affect the general application of section 6 of the General Clauses Act, 1897 with regard to the effect of repeal". 22. Clause 174(3) serves the purpose of ensuring the general application of section 6 of the General Clauses Act, 1897, notwithstanding what has been specifically provided under the saving Section 174. This saving provision safeguards, inter alia, that the shift to the new taxation would not affect the previous operation of the amended Act or the repealed Acts. Section 174 clearly stipulates that the repeal of the Acts, shall not: "(e) affect any inv....
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.... the General Clauses Act take care of this situation. Section 24 has to be read along with the re-enacted Act in order to comprehend whether the rules framed under the old Act are kept alive even after the repeal of the old Act. If we interpret that the Rules are not saved and kept operative, the saving clause, as well as applicability of Section 6 of the General Clauses Act, would be rendered meaningless. In fact the entire purpose of section 24 is to redress the present situation. Mr. Raghvendra Singh wants us to draw an inference that although Chapter V of the Finance Act is saved, but these Rules therein are not. This is a wholly incorrect view. In our considered opinion, the CGST Rules stand on a different footing, separate and distinct from the Service Tax Rules, 1994. They do not impinge on the same subject matter. Thus, for the reasons discussed above, coupled with absence of a clear legislative intent to supersede then same, the mere bringing into force of the CGST Rules, 2017 does not mean that the Service Tax Rules, 1994 are not saved. [III] JUDICIAL PRECEDENTS ON SAVING OF SUBORDINATE LEGISLATION: 24. Now, let us examine judicial precedents on saving of subordinate le....
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....e General Clauses Act would therefore preserve the rights and liabilities created by s. 153-C of the Act of 1913 and a continuance of the proceeding in respect thereof would be competent in spite of the repeal of the Act of 1913, unless of course a different intention would be gathered." It was also held that the corresponding provision of the 1956 Act neither indicated any legislative intention of destroying the rights created by section 153-C of the 1913 Act, nor did it indicate the intention that Section 6 of the General Clauses Act will not apply. The case of State of Punjab v. Mohar Singh, AIR (1955) SC 84, was relied upon to state that a contrary intention must be manifest in the new Act to confirm that the rights under the old Act were indeed envisioned by the legislature to be destroyed by the new Act. It was observed that Mohar Singh (supra) held that: (a.) "section 6 applies even where the repealing Act contains fresh legislation on the same subject but in such a case one would have to look to the provisions of the new Act for the purposes of determining whether they indicate a different intention." And (b.) "That in trying to ascertain whether there is a contrary int....
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....ured that the notification issued under the repealed Act was thus still in force. The Court, agreeing with the stand of the State, made the following remarks, which we feel are very are relevant to the case present before us as well: "15. (...) In other words, the General Clauses Act is a part of every Central Act and has to be read in such Act unless specifically excluded. Even in cases where the provisions of the Act do not apply, courts in the country have applied its principles keeping in mind the inconvenience that is likely to arise otherwise, particularly when the provisions made in the Act are based upon the principles of equity, justice and good conscience." 17. Section 24 of the General Clauses Act deals with the effect of repeal and re-enactment of an Act and the object of the section is to preserve the continuity of the notifications, orders, schemes, rules or bye-laws made or issued under the repealed Act unless they are shown to be inconsistent with the provisions of the re-enacted statute." 23. "We do not find any force in the submission of the learned counsel appearing for the respondents that as reference made in Subsection (2) of Section 30 of 1988 Act is on....
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.... of Section 30 is with respect to acts done in pursuance of the Repealed Act and thus restricted it to such provision of the Acts which come for interpretation of the court and not the whole of the scheme of the enactment. It has been conceded before us that there is no inconsistency between Section 5A of the 1947 Act and Section 17 of the 1988 Act and provisions of General Clauses Act would be applicable and with the aid of sub-section (2) of Section 30 anything done or any action taken or purported to have been done or taken in pursuance of 1947 Act be deemed to have been done or taken under or in pursuance of the corresponding provision of 1988 Act. For that purpose, the 1988 Act, by fiction, shall be deemed to have been in force at the time when the aforesaid notifications were issued under the then prevalent corresponding law. Otherwise also there does not appear any inconsistency between the two enactments except that the scope and field covered by 1988 Act has been widened and enlarged. Both the enactments deal with the same subject matter..." (Emphasis supplied) 29. In Parle Biscuits (P) Ltd. v. The State of Bihar and Ors., (2005) 9 SCC 669, the question under considerati....
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....d a new provision substituted. Such deletion has the effect of repeal of the existing provision. Such a law may also provide for the introduction of a new provision. There is no real distinction between repeal and an amendment. This was noted in Sutherland's Statutory Construction (3rd Edn. Volume 1). There is nothing in Section 13(1)(e) of the Act which specifically provides that the earlier notification shall not cover the said provision. The provisions of the notification are not inconsistent with the amended provision and there is nothing in the amended provision to show that the earlier notification was intended to be superseded. In that view of the matter, effect of notification dated 28.1.1985 is not taken away by Section 13(1)(e) of the Act." 30. In the instant case, the repeal of the old Act and re-enactment of the new Act is simultaneous. According to the legislature, the repeal alongwith reenactment was necessary to update the law to make it most suitable to the contemporary concept of indirect taxation. Overnight, the nation switched over to the GST system, which of course required massive calibrations of the entire accounting system, both at the end of the Government ....
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....by virtue of the afore-noted proviso, they are deemed to be officers under the CGST Act as well. The appointments under the Central Excise Act were by way of notifications and such officers are continuing to discharge the functions of Central Excise Officers. One such Notification No. 12/2017-Central Excise (N.T.) is exacted as follows: "GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE (CENTRAL BOARD OF EXCISE AND CUSTOMS) New Delhi, the 9th June, 2017 19 Jyaistha, 1939 Saha Notification No. 12/2017-Central Excise (N.T.) G.S.R.(E).- In pursuance of clause (b) of section 2 of the Central Excise Act, 1944 (1 of 1944) read with clause (55) of section 65B of the Finance Act, 1994 (32 of 1994) and in exercise of the powers conferred by rule 3 of the Central Excise Rules, 2002 and rule 3 of the Service Tax Rules, 1994 and in supercession of the notifications of the Government of India in the Ministry of Finance, Department of Revenue, Central Board of Excise and Customs vide numbers 20/2014-Service Tax, dated the 16th September, 2014, 21/2014-Service Tax, dated the 16th September, 2014, 27/2014-Central Excise (N.T), dated the 16th September, 2014 and 29/2014-Central....
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....as been shown by the Petitioner to establish that the officers carrying out the verification and audit are not the Proper Officers, except for citing the Notification No. 2/2017-Central Tax. By reading this notification, we cannot draw an inference to the contrary, in the manner that the Petitioner has conceived. Thus, we are of the view that the Petitioner's contention is without substance and if the officer carrying out scrutiny and audit is also vested with the powers under the Central Excise Act, he would be well within his powers to do so. [IV] SCOPE OF THE AUDIT/VERIFICATION PROCEEDINGS - WHETHER SECTION 6 OF GCA OR SECTION 174 OF THE CGST ACT PROHIBITS INVOCATION OF RULE 5A AFTER 01.07.2017? 33. Lastly, we shall deal with the contention regarding the scope of the audit/verification proceedings and whether the exercise carried out under Rule 5A of the Service Tax Rules, 1994 cannot result in any tax becoming due. We don't find any merit in the Petitioner's submission that the expression "duty, tax, surcharge, fine, penalty, interest as are due or may become due" appearing in section 174(2)(d) can only mean such duty which has been crystalized prior to the 01.07.2017. The au....